£3.5bn 4G price tag ‘is over-optimistic’

Operators have said the £3.5bn price tag the Government has slapped on the 4G auction is overstating the amount that will be raised.

Ofcom received the applications to take part in the auction on Tuesday (11 December), with each interested party stumping up £100,000 as an initial deposit.

Chancellor George Osborne (pictured) made the surprise announcement of the £3.5bn it expects to receive in revenues from the 4G auction as part of last week’s Autumn Statement. The figure is far smaller than the £22.5bn raised by the 3G auction in 2000, but operators privately suggested Osborne’s prediction, made by a report from the Office for Budget Responsibility, was too optimistic. One said: ‘There is the fear that you are ultimately punishing investment. Each of the operators has invested vast sums in infrastructure, and by charging a large amount for the spectrum, you are not encouraging growth.’

Senior operator figures spoken to by Mobile said they were not expecting any new 4G entrants although they did not rule it out entirely. More likely was that newer companies would buy the capacity-rich 2.6GHz spectrum, which would help with backhaul.

The price tag was raised at last week’s Westminster Media Forum, a conference discussing 4G’s potential in the UK. When asked if he thought £3.5bn was a fair price to pay, Marc Overton, EE’s VP for wholesale and M2M, said it ‘probably was’ in comparison to 3G but warned: ‘The challenge is that spectrum is a precious commodity and core asset. It’s essential to upgrade and enhance the core communication infrastructure but we need to be very careful that we don’t overprice this stuff.’

Vodafone’s head of regulatory affairs Matthew Braovac refused to be drawn on whether he thought £3.5bn was an accurate prediction. He said: ‘It’s easy to make up a number. We will see what comes out.’

The cost has been seen as a high barrier to entry for new names to offer 4G services. As well as spectrum, companies would have to invest in setting up a network. Operator sources said it would be more cost effective for them to piggyback on an existing infrastructure through an MVNO.

However, if the Government does not raise the cash it expects, there is a fear it could claw back the cash by other means. While an industry tax appears unlikely, the annual licence fees for spectrum will be set post auction, and higher fees could make up for the shortfall of cash raised from the 4G sell-off.